TORONTO — The Ontario Energy Board says the environmental risks of the $12-billion Energy East pipeline project outweigh the potential benefits, and warns it will drive up natural gas prices.

“What we have found is there is an imbalance between the economic and environmental risks of the project and the expected benefits for Ontarians,” said OEB vice-president Peter Fraser as he released a report on Energy East.

TransCanada Corp. (TSX:TRP) is planning to build the pipeline to bring Alberta crude to refineries in Quebec and to a refinery and marine terminal in Saint John, N.B. For two-thirds of the way, it plans to convert a natural gas pipeline for oil and then build all new pipe through Quebec and New Brunswick.

After 15 months of consultations with people in communities along the Ontario route of the pipeline, the energy board found residents are worried about leaks.

“The top concern expressed was the risk of an oil spill as the pipeline runs near or across many waterways,” said Fraser. “Our advice is that for the existing pipeline, when it is too close to environmentally sensitive areas, it should be rerouted unless it can be justified by TransCanada as necessary.”

The OEB report also said residents are rightly concerned the project could drive up natural gas prices. Its technical experts found there will be higher natural gas prices as a result of Energy East because there will be less supply.

“They estimated that on average, over a 20-year period, in the winter time, natural gas prices in eastern Ontario will be 11.9 per cent higher than if Energy East did not go ahead,” said Fraser.

Union Gas Limited, a natural gas storage, transmission and distribution company based in Ontario, said it reached the same conclusion.

“We want assurance that Ontario natural gas customers will not bear the costs and risks related to the Energy East oil pipeline, and we continue to be open to finding a satisfactory resolution of these issues with TransCanada,” said Union Gas president Steve Baker.

TransCanada pointed out the benefits of delivering Alberta crude to the Maritimes, saying eastern Canada imports more than 600,000 barrels of oil a day that could be replaced “from a secure supply right here in Canada in the safest possible way, by pipeline.” The company said it wants to address the concerns raised in the OEB report.

“Our team will continue to work closely with the Ontario government to ensure the project meets proven safety standards and environmental protection while delivering important economic benefits,” said TransCanada’s Energy East president Francois Poirier.

New Brunswick Energy Minister Donald Arseneault doesn’t think the Ontario report will be a setback for Energy East, which he calls a “tremendous” project.

“There are other reports such as the Conference Board of Canada which really sees the economic benefits of the Energy East pipeline,” said Arseneault.

The Ontario Energy Board said the benefits of the pipeline to the province would include a $12-billion to $19-billion impact on gross domestic product and a full-time equivalent job impact of up to 114,000 positions.

“These kinds of analyses tend to focus on just the benefits of all the spending and not on the other kinds of costs associated with the project in Ontario…for example costs related to additional emergency preparedness and other infrastructure upgrades that might be needed,” said Fraser.

The board’s report will form the basis of Ontario’s position when the National Energy Board holds hearings on Energy East, expected in 2016.

“I can assure you that Ontario plans to be an active intervener in the National Energy Board approval process, and our participation will reflect the concerns of the Ontario public to the federal regulator,” said Energy Minister Bob Chiarelli.

Environmental Defence said the OEB’s report shows the environmental risks of Energy East are simply too great. “Public input made it clear that the risky project does not have the support of communities along the pipeline route in Ontario,” said spokesman Adam Scott.

Greenpeace welcomed the OEB’s conclusion that the risks of the pipeline project outweigh the benefits.

“Given the new realities of low oil prices and a global push for action on climate change, this project is high risk and low reward for the entire country and not just Ontario,” said Greenpeace spokesman Keith Stewart.

The Canadian Manufacturers and Exporters said several Ontario groups have joined together to support Energy East, including the Chamber of Commerce, the Federation of Northern Ontario Municipalities and the construction sector.

“We are in agreement that Energy East is a true nation-building infrastructure project that will help Canada achieve energy independence.”